Commercial, Multifamily Construction Starts Down in 2017

Dodge said seven of the top 10 markets registered declines in the dollar amount of construction starts, one held essentially steady and just two showed greater activity in 2017.

"Of the commercial and multifamily project types, multifamily housing is the one that appears to have already reached its peak and is now heading downward," said Dodge Data & Analytics Chief Economist Robert Murray, noting a 12 percent decline in dollar terms during 2017.

The multifamily expansion began in 2010. "In 2015 it benefitted from a surge of activity in the New York metropolitan area and then in 2016 it showed broader growth geographically due to strong gains by other major metropolitan areas," Murray said.

That pattern shifted last year as markets including Los Angeles, Dallas-Ft. Worth and Washington, D.C. retreated from their 2016 levels, Murray added. "Multifamily vacancy rates, while still low historically, have been edging up slightly on a year-over-year basis for almost two years," he said.

In addition, banks have adopted a more cautious stance towards lending for multifamily assets, the report said. In the most recent Federal Reserve Survey of Senior Bank Lending Officers, 16 percent of respondents indicated they tightened standards for multifamily loans during the fourth quarter.

"At the same time, the downturn for multifamily housing at the national level is expected to stay moderate for the near term as the latecomers to the multifamily expansion--particularly in the smaller markets--continue to see growth," Murray said.

The picture for commercial building is more mixed. "Both office buildings and warehouses seem to still be in the process of reaching a peak," Murray said. "Although downtown and suburban office vacancy rates edged up slightly in the fourth quarter, they remain low by recent standards, and warehouse vacancy rates have not yet begun to rise in a sustained manner."